Defence: strategic policy and procurement

David Watt, Foreign Affairs, Defence and Security Section

Key issue
There is an ongoing tension in the history of Australian Defence White Papers between capability needs and the financial means required to pay for them. This has been particularly true in the post-global financial crisis world and will remain an issue of importance for the new government.

Ends and means

During the life of the 44th Parliament the Department of Defence will take possession of a number of major defence capabilities including the Canberra Class Landing Helicopter Docks (LHDs), the Hobart Class Air Warfare Destroyers (AWDs), the Growler variant of the F/A-18F Super Hornet and the first two of Australia’s F-35 Joint Strike Fighters. The Government will also make decisions regarding other major defence acquisitions including the replacement for the Collins Class submarines.

The planning, development and funding of projects of this magnitude can take decades and requires long term commitment. Inevitably this puts significant pressure on governments to properly fund defence acquisition across a much longer time scale than the regular four-year budgetary cycle.

White papers: guidance or wish lists?

Australian governments have set out defence policy in a series of White Papers containing analysis on Australia’s strategic situation and the defence needs which flow from it.

2000

self-reliance—Australia had to be able to defend itself from direct military attack ‘without relying on the combat forces of other countries’

a maritime strategy—‘to control the air and sea approaches to our continent’ and

proactive operations which, if necessary would ‘seek to attack hostile forces as far from our shores as possible’.

These principles, alongside an assessment of Australia’s strategic environment, would help determine future capability choices, an appropriate ADF structure and an industry policy designed to underpin the identified capability needs. Defence 2000 also set out a funding plan for the next decade and synchronised with the publication of the first Defence Capability Plan.

Significant capability choices included a new Armed Reconnaissance Helicopter (the Tiger ARH), an additional squadron of troop-lift helicopters (a role eventually fulfilled by the MRH-90), a replacement for the de Havilland Canada Caribou and the acquisition of up to 100 new combat aircraft to replace both the F/A-18 and F-111 fighter aircraft. The 2000 DWP also noted the need for what will be the Air Warfare Destroyers, and replacements for the Royal Australian Navy’s supply ships HMAS Westralia and HMAS Success. Some of these projects have been delivered, some have suffered serious delays and some will come to fruition in the coming years—but all require long-term funding.

Defence 2000 provided a total cost for the capability enhancements contained therein ($21 billion) and described a funding model to enable their fulfilment. The Government committed to increase spending by 3% annually in real terms, as measured by reference to the Non-Farm GDP Implicit Price Deflator. The problem with this was (and is) that, in general, military costs increase faster than the rate of inflation. In 2010, the Australian Strategic Policy Institute (ASPI) estimated that in order for Australia to substantially improve its defence capabilities, a minimum of 3.1% annual growth in the Defence budget would be required. Even during the decade of the 2000 DWP, the cost of maintaining ageing aircraft was rising annually by 7%,well ahead of the Government’s GDP growth prediction. Although the Howard Government grew defence spending by an average of 3.7% during the rest of its time in office, it also greatly expanded the list of required capabilities.

2009

By the time the Rudd Government released its Defence White Paper,Defending Australia in the Asia Pacific Century: Force 2030, the global strategic situation had undergone a substantialtransformation. This was primarily due to the post 9/11 ‘war on terror’ and the economic impact) of the 2008 Global Financial Crisis (GFC). However, the 2009 DWP largely repeated the same key strategic objectives as the 2000 DWP.

At a conceptual level the 2009 DWP emphasised that Australia must be able to act with a degree of independence, and accordingly, its capability choices were comprehensive.

Given the similar objectives and the long time frames necessary for the delivery of complex capabilities, it is unsurprising that that the 2009 DWP repeated many of the capability requirements of its 2000 predecessor. However, it also added some new and substantial requirements. In particular, it called for the acquisition of 12 submarines to replace the six Collins Class and new frigates to replace the Anzac Class; naval combat helicopters (a serious capability gap following the failed Super Seasprite project); as well as deciding the F-35 Joint Strike Fighter would replace the F/A-18 Hornets and the venerable F-111s.

Paying for such an extensive list (the cost of which Defence put at more than $200 billion) would prove to be a difficult task. The 2009 DWP contains a more complicated formula than its predecessor: 3% real growth to 2017–18, and 2.2% real growth in the Defence budget from 2018–19 to 2030. Funding rates also moved to 2.5% fixed indexation instead of continuing to use the Non-Farm GDP Implicit Price Deflator. However, the impact of the GFC required the Rudd and Gillard Governments to make difficult choices about expenditure and Defence was not granted the funding levels that it expected in 2009.

2013

Given the new economic conditions, it is unsurprising that the 2013 Defence White Paper takes a more circumspect approach to funding defence acquisition. The 2013 DWP repeats almost all of the 2009 capability choices but uses a funding model that only spans the four-year forward estimates cycle and then providing six-year ‘funding guidance’. While the Government added significant additional funding to Defence in the 2013–14 Budget this did little to resolve the tension between the extensive capability plans and the cautious approach to funding.

The next defence white paper

The Coalition has committed to producing a new Defence White Paper within 18 months, which will have ‘an alignment of the government’s defence policy with a clear military strategy and an affordable ADF structure designed to achieve that policy’. How the new Government reconciles Australia’s defence needs with its financial means will be a key test for the success of the new White Paper—and the Government.